When is the right time to set up a dedicated Pricing team?

Pricing is usually not one of the first teams to be formed in a fledgling organization. Usually, it’s the Sales or Product teams who initially assume that responsibility (as they are the ones familiar with customers’ needs and the competitive landscape.) In both cases a certain bias is introduced into pricing, resulting from the team’s priorities and ways of working.

Sales-driven pricing tends to be reactive, mainly driven by the needs of any current deals. Discounting is usually exaggerated, leading to revenue leakage. (It is driven by a common misconception that lower prices always help with closing deals).

On the other hand, Product-driven pricing is often driven by the pursuit of maximizing feature adoption, not revenue. Resulting with overly feature-rich packages that are aimed at driving up customer satisfaction. In reality, that way product-driven deals are structured often creates customer frustration. Customers feel they are overpaying for features they don’t need. Also, since the Product team intimately understands the cost and complexity that went into launching any new feature, they tend to over-price. (Just like home-owners tend to overestimate the market price of houses they have put a lot of effort into renovating.)

The role of a dedicated Pricing team is to provide an unbiased and balanced view, taking into consideration overall business and customer priorities like revenue growth, market share growth, operational simplicity, customer satisfaction and profitability.

Therefore, once the organization grows to the stage that Product, Sales, Finance and Operations are measured by their own set of success metrics, it’s time for a dedicated Pricing resource.

The initial Pricing hire may be just one person, or even periodical help from a Pricing-focused consultancy. Growing an in-house Pricing team becomes more important when:

- The organization has more than one product line (and more than one Product team), so the synergy and consistency between products needs to be maintained.

- The marketing strategy includes more than one customer segment. Creating the need for adjusting pricing and packaging to different audience profiles.

- The organization decides to introduce multiple Sales channels (i.e. Online, Direct Sales, 3rd Party). The pricing preferences of Online and Direct Sales customers are often very different; a one-package-fits-all approach will not work in the long run.

An organization can develop into a medium-size or even an Enterprise-size company without a dedicated Pricing team. However, it will affect the quality of decisions as the pricing structure may be too focused on needs of one team. Lack of Pricing function may also create an operational debt that will be very expensive to pay off at later stages of growth. Therefore, it’s safe to say, that it’s never too early for enlisting a dedicated and experienced Pricing resource.